New power of the nominating committee;

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The New Power of the Nominating Committee
by SILAS S. CATHCART/Chairman, CEO, Illinois Tool Works, Inc.
The nominating committee has emerged as a powerful force capable of determining cor-porate direction.
Why has this happened? A number of key developments has recently changed the role of the board of directors, setting the stage for the emergence of the nominating com-mittee. Some developments have been legislative, such as the Foreign Corrupt Practices Act of 1977, which requires directors to oversee their companies more closely for possible illegal payments. Lawmakers such as Senator Howard Metzenbaum of Ohio even have talked about legislat-ing standards of conduct for direc-tors, and Ralph Nader has his Cor-porate Democracy Act
Regulatory actions, principally by the SEC, have had even greater impact, Pressure (or more participa-tion on boards by outsiders and stepped up investigations of negli-gence or misconduct by directors are two primary examples of SEC activity in this area
Equally as important as regulatory and legislative pressures has been the litigation against directors by share-holders. A national insurance broker-
age firm reports that the number of claims against corporate directors has increased 300 percent in the five years since the Penn Central cases were settled. Of the top 1,000 cor-porations in the U.S., 95 percent now carry liability insurance for directors and officers Five years ago the figure was only 60 percent.
Understandably, the combined effect of all these external influences has been to alter significantly the way boards function and how board members view their jobs. One clear trend has been a greater involvement by outside directors. A recent study conducted by Korn/Ferry, an execu-tive placement firm, indicates that, as of 1979, the average board consisted of four inside and nine outside direc-tors. What's more, 75 percent of the directors surveyed felt that outsiders should outnumber insiders in the boardroom That represents a trend, incidentally, with which I agree.
Indeed, I am convinced that further legislative and regulatory restrictions on board members can be prevented only if we actively support the ap-pointment of outside directors as a means of assuring an independent board. The corporate community's
voluntary agreement to the call for greater board autonomy and in-creased corporate governance is far more constructive than would be increased governmental regulation It offers far greater benefit to business, to shareholders, and to the taxpay-ing public.
A second trend, which is basically a response to the increased responsi-bilities that a board must bear, is the emergence of the committee struc-ture. A strong committee structure takes advantage of individual exper-tise, allows more deliberation of issues apart from meetings of (he entire board, and permits better use of the board members' limited time. The increased use of committees in and of itself, however, is not enough. Committees must be given specific and rather narrow charters, and we are seeing the first emergence of such duties as setting objectives, formu-lating and approving strategies to achieve these objectives, evaluating overall performance, and selecting, motivating, even firing the chief executive officer.
Probably the first committee to be used widely was the audit commit-tee, which is usually composed of
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